Metals

Strengths

Development of the use of electrical batteries (transport, connected objects)

Restructuring of industries (nickel, rare earths, aluminium) and the reduction of production costs

Weaknesses

Usage rates for production capabilities below pre-crisis levels

Decrease in world rates

Downturn in Chinese growth

Risk assessment

Highlights

Annual Steel Production
(Annual Variations, by %)

Prices for major metals were geared towards an increase in the second half of 2016, mainly due to the recovery of the construction industry and infrastructures in China, and in part to the closure of several mines. Nevertheless, prices still remain below the high levels seen in 2011, and according to Coface, only result in a meagre break for producers.

The Chinese steel industry has slightly increased its production by 0.7% at the end of October over one year. Consequently, the monthly average for the SteelHome SHGSI main steel products index grew by 45% between January and December 2016. In addition to steel, other metals are also on the increase. Aluminium saw its peak on the LME spot, average monthly price per tonne increase by 17.1% for the year between January and December 2016, with a strong performance in the automobile sector in Europe and China, but also the closure of some production units in China. The spot monthly price for the LME nickel, zinc and copper stocks follow the same trend, with strong increases of 32.9%, 73.2% and 16.6% respectively.

Chinese exports for steel continued to grow, with an increase of 7% for exports of finished steel products at the end of October 2016 over the year, mainly to Asia. Nevertheless, that also affects the European steel sector which is imposing interim customs tariffs on certain steel products from China.

Demand

Global consumption for steel products should grow by 0.8% in 2017. Continuous measures taken to impose fees on Chinese products risk putting client sectors at a disadvantage, which benefited from steel imports at a lower price.

China may see its consumption lowered by 2% in 2017, after the expected drop by 3% in 2016 according to the Australian Ministry for Industry. This is due to the economic downturn in construction and public works industries in 2017. Indeed, real estate investment slowed down in the largest cities across the country, which induced a decline in the financial situation for the parties concerned, as reflected in the payment delays shown for March 2016. Finally, although we predict a 9% increase in automobile sales in 2017, this will not be sufficient for counterbalancing the poor form in construction. Consumption of steel products by India is expected to take off in 2017, and grow by 7.7%. Public support for infrastructure projects and the manufacturing sector should promote local consumption.

Western Europe must see its consumption grow by 3% in 2017. Moreover, the strong performance of the European automobile market benefits from its domestic producers, better positioned with high added value steel. The registration of new vehicles is forecasted to grow between 3% and 5% in 2017, according to our scenario. On the side of production, numbers must be on an increase, particularly in Germany, and in the Eastern European countries. In addition, good borrowing conditions, and the improvement of household finances will continue to steer the construction sector towards an increase in 2017. According to the latest Eurostat figures for the euro zone, the building permit index grew by 13.2% at the end of August 2016 over one year.

Steel consumption in the United States should grow by 2% in 2017. The construction sector, the primary customer for the steelmaking industry, is in a reversal phase, and 2017 should not be different. However, this assumption will become invalid if Donald J. Trump implements his investment plan in infrastructure. Moreover, one of the driving forces of steel consumption has stalled: new car sales should contract by 0.6% in 2017.

In Brazil, the demand for steelmaking will continue to contract in 2017, with a drop of 12%, due to the weak construction market and manufacturing industry.

Supply

Global production should grow by 0.8% in 2017, driven by India, Europe and the United States. The Chinese steelmakers must continue to reduce their production capabilities.

Chinese production should decrease in 2017 by 1%, after a 1% drop in 2016. The country is at the centre of controversy, by exporting steel products which inundated the world. Chinese steelmaking is mainly focused on products with weak added value for the construction sector (close to 60% of opportunities for the steelmaking industry). In addition, it is largely decentralized and local provinces have little incentive to reduce this fiscal resource so far. Production in India should grow by 7% in 2016. This rate is well below the growth objectives established by the government of 13% per year between 2015 and 2025. As a matter of fact, Prime Minister Modi's government hopes that within this timeframe, the country can produce roughly 300 million tonnes of steel per year. Lastly, to continue to protect their steelmakers from foreign competition, Modi's government will continue to maintain its considerable customs tariffs for certain products.

Western Europe should obtain negative growth of 1% in its steelmaking production in 2017. The relatively good performance for consumption did not favour the European producers, even though certain high value added steelmakers were able to compete in the market. The effects of Chinese competition has been able to play a role up to this point, but measures taken by the European Commission to impose customs tariffs on certain products will definitely help the sector. In addition, the probable exit of the UK from the European Union would, in the medium term, leave the field open for certain European countries to enable harsh measures against Chinese products.

In the United States, steel production should grow by 1% in 2017. Local steelmakers benefit from decisions made by the federal government to continue to impose heavy duties on certain Chinese steel products (but also Brazilian, Russian, Japanese, etc.) up to 266%. The sector would see a significant increase in production if Donald Trump persuades Congress to finance his infrastructure development project. Indeed, this project should induce additional demand and thus a surplus in production.